Thursday, April 19, 2018

Netflix Raised Prices & Users Kept Subscribing

Netflix Inc. used to worry it would alienate customers by raising prices for its streaming service. However, the company posted its strongest first quarter since going public 16 years ago, despite raising prices for most of its customers over the past several months. Netflix added 7.41 million users in the period and the stock is up 75 percent this year, leading the S&P 500 index.

That Netflix was able to raise prices even as it grew its consumer base is not a surprise. I believe the entire strategy depends on a dynamic increase in customer value through the creation of original content which not only decreases customer acquisition costs but also retains customers and, once the surplus consumer value is great enough, allows for an increase in average revenue per user (ARPU). Netflix increased both its user base and average selling price that is, ARPU. 

There are various competitive advantages Netflix has being an aggregator. First, Netflix built a userbase before it had to enter into any negotiations. This vastly improved its BATNA. Secondly, Netflix has licensed content, not agreed to royalty agreements. That means that Netflix’s costs are fixed. Finally, Netflix has augmented its licensed content with content it has produced itself. All these competitive advantages make Netflix unique and bound to succeed! 


No comments: